Citigroup shares rise as earnings beat estimates on trading

Citigroup Inc. advanced the most among the largest U.S. banks, reaching a six-month high after reporting a surprise third-quarter profit and a surge in bond- trading revenue that beat analysts’ estimates.

Citigroup rose 4.3 percent to $36.25 at 2:51 p.m., the biggest gain in the 81-company Standard & Poor’s 500 Financials Index, after the New York-based company said net income excluding one-time items and a $582 million tax benefit was $1.06 a share. That beat the 97-cent estimate of 25 analysts surveyed by Bloomberg.

Chief Executive Officer Vikram Pandit, 55, is cutting jobs and disposing of unwanted assets, including a 49 percent stake in Smith Barney, as he seeks to return capital to shareholders and comply with new regulations on buffers against losses. Revenue from fixed-income trading surged 63 percent excluding accounting adjustments after tumbling last year during the European sovereign-debt crisis.

“Citigroup remains a company that has been steadily profitable for some period of time,” Todd Hagerman, an analyst with Sterne, Agee & Leach Inc. who rates the shares neutral, said before earnings were released. “They have a lot going for them in terms of their relative balance-sheet strength as well as the consistency of their earnings.”

Third-quarter net income was $468 million, or 15 cents a share, down from $3.77 billion, or $1.23, a year earlier, the company said today in a statement. Including one-time items, analysts estimated Citigroup would post a loss of $777 million. The tax benefit was related to the resolution of “certain tax- audit items,” the bank said in the statement.

Tax Audit

“As any corporation, we have certain reserves that we set aside to handle tax-audit items,” Chief Financial Officer John Gerspach said on a conference call with reporters. “When those audit items are cleared, we either use the reserve or release it into earnings.”

“This was the year for Citi of good expense control because that was really lacking in 2011,” said Thomas Brown, CEO of hedge fund Second Curve Capital LLC, in an interview today with Betty Liu on Bloomberg Television’s “In the Loop.”

Fixed-income revenue rose to $3.7 billion, excluding $672 million of so-called credit-valuation adjustments tied to the firm’s bond spreads. The increase resulted from “significantly higher trading revenues” in credit-trading, overseen by Carey Lathrop, and securitized products, which is run by Jeffrey Perlowitz and Mark Tsesarsky, the firm said. Currencies and rates also had a “strong” performance, according to the statement.